Black Swan Theory

The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight.

The theory was developed by Nassim Nicholas Taleb to explain:

1. The disproportionate role of high-profile, hard-to-predict, and rare events that are beyond the realm of normal expectations in history, science, finance, and technology.
2. The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities).
3. The psychological biases that blind people, individually and collectively, to uncertainty and to a rare event's massive role in historical affairs.

What is Black Swan Event?

A "black swan event", to start, is an unexpected surprise (just like the bird, the black swan). In addition, black swan events also have these traits:

1. People contend that they expected the event to take place (in hindsight).
2. They have a major impact on society.
3. People, in hindsight, contend that they were not surprised that the event took place.

So a "black swan event" is an unexpected surprise that has a major impact on society. In addition, people look back on the event and contend that they were not surprised that it took place. That is a "black swan event".

Examples of "black swan" events :

1. The creation of the Internet.
2. The earthquake in Japan.
3. The fall of Russia.
4. 9/11.
5. The financial collapse of 2008.

 

Reference:

https://en.wikipedia.org/wiki/Black_swan_theory

http://www.davemanuel.com/what-is-a-black-swan-event-89/

http://www.davemanuel.com/investor-dictionary/black-swan-theory/